This afternoon, the Illinois Supreme Court heard oral argument on the biggest case on its civil docket, In re Pension Reform Litigation. In re Pension Reform Litigation involves the question of whether SB-1, the pension reform act adopted by the Illinois General Assembly in 2013, violates the Illinois Constitution’s Pension Protection Clause. The Clause provides: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”
Solicitor General Carolyn Shapiro argued the case for the State. She began with the State’s “parade of horribles” for the plaintiffs’ position, arguing that if the pension clause is absolute, then the State will be unable to respond to prolonged inflation, a collapse in the bond rating or a catastrophic epidemic. She argued that the plaintiffs’ position that pensions were absolutely immune from reductions raised serious constitutional problems, and shouldn’t be adopted without explicit and unmistakable language. As the State did in its brief, she argued that the words “diminish or impair” refer back to the contractual relationship – not the benefits themselves. “Diminish or impair” essentially mean the same thing, counsel argued, while the plaintiffs’ construction of the clause elevates that language and renders the first half of the clause meaningless.
As I’ve discussed in earlier posts analyzing its briefs, this argument from the State is problematic. The State has struggled throughout the briefing to explain what meaning should be ascribed to the “diminish or impair” language in its construction. The notion that the words refer to the contractual relationship doesn’t get the State there – simply saying something is “a contract” in the State’s view imports limited protection, and the “diminish or impair” language adds nothing more. So what does the clause mean? And the State gets itself into even greater difficulty with the second half of the clause, insisting that the words “diminish” and “impair” are a redundant rhetorical flourish.
Justice Thomas asked whether, if the Court agreed with the State and allowed it to invoke police powers in response to a funding emergency arguably created by the State, it wouldn’t be giving the State a license to avoid its obligations whenever it wanted to – couldn’t the legislature simply refuse to fund pensions and then claim an emergency? Counsel answered that the State couldn’t invoke the police power whenever it felt like it, but a serious fiscal crisis was enough. Justice Thomas asked how the pension funds would have weathered the recession if they had been fully funded. Counsel responded that while the funds might have survived in better shape, the recession was an unforeseeable event. Justice Thomas suggested that one could argue how unforeseeable recessions are, but isn’t it true that the State left the funds vulnerable to recession? Counsel argued that the pension reform bill did not address the portion of the debt created by underfunding.
Justice Thomas pointed out the inconsistency in the State’s push for a remand. The State had asked for an accelerated schedule, insisting that it needed an answer by May 31, but now the State was seeking a remand for more fact-finding, which would certainly preclude an answer by that date. Counsel agreed that a remand couldn’t be completed by May 31, but suggested that if the Court affirms, holding that no benefit cuts are permissible, the legislature needs to know that as soon as possible.
The State’s argument concluded with a flurry of questions which suggested that at least two Justices had serious qualms about the State’s position. Chief Justice Garman asked counsel whether the legislature had revised or avoided any other contracts in response to the alleged crisis, or whether that was even relevant. Counsel answered yes, the State pays its bills more slowly – but ultimately, that’s a question for remand. When counsel transitioned back into an argument about the changes made by the Act in response to the fiscal emergency, Justice Thomas asked whether there was any problem with the substantial income tax reduction at the beginning of the year in the midst of the supposed dire fiscal situation. Once again, counsel argued that the question was for remand, but the ability to simply raise taxes didn’t inevitably defeat a police powers argument.
Counsel returned to the State’s argument about the Constitutional Convention, which we’ve discussed here, here, and here. Counsel argued that the pension clause was the result of concern over the effects of home rule. Justice Thomas asked what the Court should do, then, with the clear evidence in the Constitutional debates that the delegates intended that there be no benefit cuts in trying times – wasn’t reducing future benefits problematic then? Counsel concluded by once again arguing that if the delegates to the Constitutional Convention intended that the clause be absolute in its protection for employee pensions, then the clause violated the Federal constitution.
Counsel for the union plaintiffs followed. He argued that the pension protection clause was clear and unambiguous, with no stated exception. The clause is a stand-alone provision, not part of the contract clause. The drafters of the clause anticipated exactly the situation the State faces today, counsel argued. In response, they wanted to achieve two things – first, clearly mandate a binding contractual relationship, where benefits could not be considered gratuities. Second, they wanted to ensure that pension benefits were guaranteed. The resulting clause was plain and clear in its meaning, as the Court has recognized numerous times. Counsel argued that the clause was intended to indirectly force full funding of the pensions by making it abundantly clear that the obligations were real. Chief Justice Garman asked whether the police power ever could impair the pension rights, and counsel responded certainly not under these circumstances. The doomsday scenarios posited by the State don’t apply here, counsel argued – surely a simple invocation of fiscal problems isn’t enough to ignore a constitutional command.
The Chief Justice asked whether a remand was necessary then to address the reasonableness of the State’s response to the emergency. Counsel answered no. None of the contracts clause cases the plaintiffs cite involve overriding a constitutional provision. In Kanerva v. Weems, even the dissenter (Justice Burke) agreed that if the monies involved there were a pension benefit, they could not be diminished. Counsel briefly turned in closing to the State’s federalism argument. Counsel argued that the State was mistaken that the police power could never be withdrawn in a state constitution. The police power does not trump affirmative commands of a state constitution, counsel argued, and the State had not cited a single case to the contrary.
Counsel for the State Universities Annuitants Association was next. He argued that it was clear that pension clause was not subject to the police power. Counsel offered his own answer to the Chief Justice’s question about whether the police power ever applies to pensions, arguing that the Constitution tells us when there are exceptions. Counsel cited the Court’s statement in Kanerva that the pension reform clause should not be rewritten to include exceptions not written by the delegates or adopted by the people. Counsel concluded by wondering, if the State could avoid any financial arrangement by invoking a simple fiscal emergency, what would that say for the viability of any other state contract?
When the Solicitor General rose for rebuttal, Justice Karmeier asked a question about the State’s federalism argument. He said that his understanding was that all government power flows from the people, and that power is assigned through the constitution. If the people had adopted a constitution, with a pension protection clause with different language than the contract clause – and with a right to bear arms which explicitly noted an exception for police powers – wasn’t that all there was to say about sovereign power? Counsel responded that the U.S. Supreme Court has said that even the people themselves cannot permanently give up police powers. Counsel briefly touched on the constitutional debates, arguing that the pension protection clause had wound up in a separate place from the contract clause because the concern over home rule which she said had led to its adoption had arisen after the bill of rights was adopted.
Counsel pointed to the plaintiffs’ argument about the absolute language of the pension protection clause, but noted that the contract clause is written in absolute language too – and yet, 150 years of case law says its meaning isn’t absolute. Justice Thomas repeated his question from the Solicitor General’s lead-off argument: the State says allowing a police power exception wouldn’t amount to licensing the avoidance of contracts, but isn’t that exactly what the Court would be doing by allowing the State to avoid a constitutional command because of an emergency the State created? Counsel answered that the State’s power regarding pensions was the same as its power to modify contracts. Justice Thomas asked what the import of the State’s argument was – that a ruling in its favor wouldn’t license the State to modify any contract. Counsel said the State couldn’t modify contracts at will. Justice Thomas asked if the reason is a state-created emergency, why doesn’t that amount to a license to modify the obligation at will? Counsel answered that the situation was created by a combination of the severe recession and inflation. Chief Justice Garman asked whether counsel could cite any case allowing modifications to a contract through the police power outside of purely regulatory situations? Counsel cited the Chief to several teachers’ unions cases from the State’s brief. Counsel concluded by arguing that there is no dispute that the State has a fiscal emergency on its hands – the only dispute is whether the Act is a proper response to it. Counsel urged the Court to remand for consideration of that question.
Based on the intense and almost exclusively skeptical questioning of the State (twenty questions for the State, two for the plaintiffs), affirmance of the Circuit Court’s order striking down the Pension Reform Act seems likely.
The decision should come down on or before May 31.